18,442-547 zone key for Nifty to scale a new high

The domestic equity market snapped its four-week winning streak and closed marginally lower. The global benchmark indices also traded sideways. NSE Nifty declined just 42.05 points or 0.23 per cent. The BSE Sensex is also down by 0.2 per cent. The Nifty Midcap-100 and Smallcap-100 indices were down by 1.5 per cent and 0.9 per cent, respectively. The Nifty PSU Bank index is the top gainer for another by 2.4 per cent. Fin Nifty and Bank Nifty gained by just 0.3 to 0.5 per cent. The Nifty Media index, down by 5.4 per cent, is the top loser, and the Auto index is down by 2.0 per cent. The broader market breadth is mostly negative during the week. VIX has registered the lowest weekly close after September 2021. FIIs bought Rs12,838.94 crore, and DIIs sold Rs3,369.90 crore worth of equities during the current month.

The equities traded in a very tight range after a four-week rally. The Nifty traded in just 232 points range. It opened with a positive gap and did not sustain above the weekly opening and formed a bearish hanging man candle. The momentum completely waned. The index hit a new 52-week high during the week. The current price structure on daily and weekly time frames shows that the market is at a mature stage of the rally. It closed below the two-day low and declined below the rising trend line support on a daily chart. Though it has not given any weaker signals or closed below the short-term average, the index failed to sustain at the higher levels. The negative broader market breadth and the index breadth show exhaustion.

During the previous four weeks' rally, the FIIs inflows and the Forex inflows supported the market rally. But last week, both were subdued, and the market is also traded in a very tight range. Almost every week, the index registered gap openings. Interestingly, during last week the gap was not visible. On Thursday, the Nifty closed below the prior day's low, and Friday, it formed a bearish engulfing candle. At the same time, profit booking was seen in every rise, and every dip also bought into. This cat and dog phenomenon will continue for the next week also. The 18,115-442 range is the most probable range for next week. Closing above these will give a directional trade. On an hourly chart, the Nifty has broken the rising channel support and on the moving average ribbon. In any case, if the Nifty trades below 18,259 after the first hour of trade on Monday, we may get the weakness signals.

The RSI failed to move above the 70 zone after several attempts and declined to 63.91 from 68.90. A close below the 60 zone will be a confirmation of the short-term weakness. Interestingly, even on the weekly chart also, the same levels are visible. The MACD line is also declining and about to give fresh bearish signals. But remember, these patterns have not yet given bearish signals. They are only hesitant to move higher.

The Dow Jones and the S&P500 indices also traded sideways during the last week and formed indecisive candles. The S&P 500 index is bouncing from the 50 weekly average. In the last 150 years of history, the 50-week average worked as strong support, including the 2020 decline and the 2008 disaster. Interestingly, the Dollar index (DXY) is trading below the 50 DMA for the second week, and it has traded in sideways for the last five days. But, the Dollar strengthened further. The 103-106 zone is crucial for DXY. As mentioned several times, this index has an inverse relationship with equities. The further decline will enhance the sentiment in equities. The question is if the Dollar Index decline and the global equity benchmark rally will also boost the sentiment in domestic equities and lead to a new lifetime high, or will the outperformance end with the profit booking?

The Bank Nifty's outperformance stalled for the last two weeks. It formed two consecutive bearish candles at the new lifetime high. But they still need to get confirmation of their implications. A continuation of the rally will protect the Nifty from a probable decline. The metals are also looking strong for now. The Nifty has to clear the 18,442-547 zone of resistance to form a new lifetime high.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)